Buying a Home

Research conducted by the National Association of Realtors indicates that the vast majority of home searches today are begun on the internet. Many, many sites carry information from the local multiple listing services and a few also provide demographic information and market trends. There’s almost too much of it.

Almost all of this information is driven by databases.

Computers are smart but still may not capture the same sense of place that a professional with a long history in a location, like your friendly real estate agent. Using both the search tools and an agent’s expertise the way they are intended will increase your chances of having a good home buying experience.

Online searches

Almost every local real estate site uses the data from the local multiple listing service and one of several available search tools to do home searches in it’s area. However, all tap the same data, so find one you are comfortable with. Some sites will require you to register with your email address before you can use their site. Remember, this is not a public service, it is one of the many way brokers get client leads and providing the search involve expense on their part. If you are uncomfortable with this you can find sites that don’t require registering. The big national sites also are trying to “capture” leads that they can sell through various processes to brokers. If you have an agent, most of them can also set up searches that will notify you automatically when new properties come on the market that match your criteria.

Some Technical Stuff

Here is a short primer on the regulations and customs that govern home buying in North Carolina.

All real estate transactions in the U.S. are governed by local and state laws and are strongly influenced by local custom so it is important to learn about these things, especially if you are contemplating a purchase in a market new to you. In North Carolina the North Carolina Real Estate Commission supplements the existing real estate law with regulations governing the practices of real estate agents.

Consumer Protection

The primary mission of the North Carolina Real Estate Commission is consumer protection.

The NCREC licenses all real estate agents and dictates pre-licensing training and required continuing education. Licensing is meant to keep agents and their clients out of trouble but it does not teach an agent how to market a home or find one for a client. You don’t have to be a REALTOR to be a broker but you do have to be a broker to be a REALTOR.

Buyer Agency

Until a few years ago, all real estate agents technically represented the seller in a transaction, even when that agent was hired by the buyer. You may not realize it but that’s still the way insurance is sold. “Your” agent doesn’t technically represent you but she may represent one or several insurance companies. The real estate commission decided that buyers deserved equal representation and formally established “buyer agency” with its own set of practices and requirements. All licensed agents are licensed to represent both buyers or sellers and under certain circumstances they can represent both in the same transaction.

When an agent or broker (all licensed agents in North Carolina are now brokers) signs a listing agreement with a seller or a buyer agent agreement with a buyer, they assume some important obligations to protect their clients’ interests. When interviewing buyer agents it is important to be careful about what information you share with them about your motivations or financial situation until you actually sign an agreement.

An agent may show you homes without a buyer agent agreement in place, however, at that point the agent is technically representing the sellers and could/should use any information they have learned from you to get the best deal for the seller, not you. This troubles some buyers who do not want to commit to a buyers agent that they may have just met. However, most buyer agents will work with a client with a short term agreement or readily release a buyer from an agreement if some conflict develops. Per the Commission regulations, one of the first things any agent you talk to in a “meaningful” way should do is explain these agency rules.

Other Professionals

Unless you have purchased property locally recently you should also ask that any prospective buyer agent review the process with you . In most cases a home purchase will involve other professionals including a mortgage broker, a home inspector, an appraiser and an attorney.

In North Carolina, most residential real estate closings are handled by attorneys who specialize in these transactions. This is a little different than some other states where this is traditionally handled by a title company. In North Carolina these attorneys maintain Trust Accounts and are strictly regulated with regard to how money is handled.

Due Diligence

If you haven’t bought or sold a home in North Carolina in several years you may be in for a surprise. Several major revisions have been made to the standard contract. In January of 2011 most of the language about inspections was completely changed. The most significant change was the incorporation of a “due diligence” period. This is something common in commercial real estate contracts and is becoming more common in standard residential contracts all over the country. Both the length and the cost of the due-diligence period are negotiated between the sellers and potential buyers. Basically, the due diligence period is used to do all inspections and line up all financing. However, during the due diligence period the buyers may walk away from the purchase “for any or no reason” including “I changed my mind.” The seller does not have that option and must honor the price and other terms negotiated in the contract. In other words, if someone comes along who will pay more or close sooner, the seller does not have to option to back out of the original agreement.

It is extremely important to work closely with your agent during the due diligence negotiations. An important difference between the due diligence fee and earnest money is that earnest money is held in a trust account until closing while the due diligence fee is paid directly to the seller and is non-refundable. Both, however, are credited towards the purchase when closing takes place. Buyers pay for this privilege so it is very important to understand.

Once you begin working with an agent, the agent should provide you with a sample copy of the contract. Read it carefully and get the agent to explain anything you don’t understand. If the agent doesn’t seem to “get it” tell them to “get lost.” Negotiating the contract and subsequent repair requests are a very important part of the service that the agent is providing you and mistakes can be costly.

Earnest money

“Earnest money” is traditional and part of the contract negotiations but not required and was traditionally kept in Trust accounts maintained by the listing agent’s firm, once a contract was in place. Many firms today in North Carolina no longer maintain a trust account to hold earnest money, so this now is frequently done by the closing attorney.

A buyer agent in most cases will be willing to recommend professionals for the jobs mentioned above and other specialized personnel such as well inspectors and even contractors for estimates and repairs. In addition they will often be in a position to recommend lenders or mortgage brokers but the choice is always the buyer’s choice. The exception is that the lending institution will choose the appraiser when financing is required.

Pre-qualification or pre-approval

Like most areas of the country, it is traditional that potential buyers be “qualified” before entering into a purchase contract. In the luxury segment, many sellers also want assurances that potential buyers are qualified before a house is even shown for the first time. It is a good idea to have a commitment from a lender or the certification from a banker or investment professional that the funds will be available to make the purchase before actually starting to visit potential homes. This saves a lot of time and potential embarrassment. It is not as critical for unoccupied new homes.

A pre-qualification letter from a lender used to be enough to get a contract going and consisted of little more than a lender running a credit check on a potential borrower. Now days pre-approvals are more likely to be requested. Pre-approvals take it one step further and usually involve confirmation of the financial data provided including employment and down payment money and usually indicates the amount the buyer is qualified to borrow associated with a particular home.

North Carolina also uses standard contracts that were developed by the State Association of Realtors and the State Bar. The most frequent exception to this rule involves national home builders that may have their own standard contracts.

Once you begin working with an agent, the agent should provide you with a sample copy of the contract. Read it carefully and get the agent to explain anything you don’t understand. If the agent doesn’t seem to “get it” tell them to “get lost.” Negotiating the contract and subsequent repair requests are a very important part of the service that the agent is providing you and mistakes can be costly.

Commissions or How Agents Get Paid.

Agent commissions or compensation generally is not governed by law or regulation. When multiple listing services were first established, the first intention was not to share data but to create a basis for sharing compensation. Tradition had long determined the commission amount, who it was paid by (the seller in most cases) and how it was split with the agent who brought the buyer.

More correctly, all compensation is required to pass through the agents’ firms, which follow strict requirements for accounting. Listing agreements now require that the listing agent disclose in the agreement what compensation will be offered to the buyer’s agent. HUD regulations also require that this compensation be included on closing statements to make sure everything is as transparent as possible.

This is not the fun part of purchasing a home. However, the savvy buyer is wise to try to understand the motivations of all parties including both agents. To reiterate, compensation practices are driven by tradition and company policy, not law or regulation. This means that it is totally negotiable. In fact, the compensation doesn’t even have to be a commission or be paid by the seller. This is often disconcerting to many agents who operated for many years guided by tradition. However, pressure from so called “discount brokers” and the “trust busters” at the U.S. Department of Justice has made the whole industry take a hard look at some of these traditions.

Wrap Up

This page is meant to be a primer for those interested in the Triangle and Durham real estate market but it is far from comprehensive. If you have questions, don’t hesitate to contact us for additional clarification.